Реферат: The Business Cycles as a Form of Economic Development

Of course, the way how business cycles go depends on each situation of different countries. In some of them recessions take no more then a year, but others stay in that phase for 5-10 years. It also depends on what caused the recession.

Causes of the Business Cycles

A lot of economists have conducted researches on what causes the business cycles to take place. Even though we don’t have an actual answer to that question. There are about 200 concepts that will describe economic crisis and their cyclicity. All of those concepts are divided into two groups.

At first, the nature of economic cycles is explained by the factors not having anything in common with economic system. They are: political events, psychological problems, solar activity cycles, wars, revolutions, the powerful breakthroughs in techniques and technology.

In particular. One Englishman explains it through the solar activity. An American, G. Moor, was talking about Venus motion rythm.

Secondly, the cycle is considered as an internal phenomenon, dealing with economics.Internal factors can cause a recession, and the rise in economic activity through certain periods of time.One of the crucial factors is the cyclicity of basic capital.In particular, the beginning of economic boom, accompanied by a sharp increase in demand for machinery and equipment, apparently suggesting that it repeated over a period of time when this technique is physically and mentally worn out.

So, generally there are two types of causes. They are internal and external cause.

Internal causes:

- political and other events;

- new land discoveries;

- climate conditions;

External causes:

- unstable consumer spending;

- unstable investment rate;

- recourses price changes.

Types and Continuity of the Business Cycles

Short business cycle(Kitchin cycle )

This cycle is believed to be accounted for by time lags in information movements affecting the decision making of commercial firms. Firms react to the improvement of commercial situation through the increase in output through the full employment of the extent fixed capital assets. As a result, within a certain period of time the market gets ‘flooded’ with commodities whose quantity becomes gradually excessive. The demand declines, prices drop, the produced commodities get accumulated in inventories, which informs entrepreneurs of the necessity to reduce output. However, this process takes some time. It takes some time for the information that the supply exceeds significantly the demand to get to the businessmen. Further it takes entrepreneurs some time to check this information and to make the decision to reduce production, some time is also necessary to materialize this decision (these are the time lags that generate the Kitchin cycles). Another relevant time lag is the lag between the materialization of the above mentioned decision (causing the capital assets to work well below the level of their full employment) and the decrease of the excessive amounts of commodities accumulated in inventories. Yet, after this decrease takes place one can observe the conditions for a new phase of growth of demand, prices, output, etc.

Middle-term cycles

Juglar was one of the first to develop an economic theory of business cycles. He identified the 7-11 year fixed investment cycle that is now associated with his name. Within the Juglar cycle one can observe oscillations of investments into fixed capital and not just changes in the level of employment of the fixed capital (and respective changes in inventories), as is observed with respect to Kitchin cycles. The recent research employing spectral analysis has confirmed the presence of Juglar cycles in the world GDP dynamics up to the present time.

Long Cycles (The Kondratiev wave)

The cycle is supposedly more visible in international production data than in individual national economies. It affects all the sectors of an economy, and concerns mainly output rather than prices. According to Kondratieff, the ascendant phase is characterized by an increase in prices and low interest rates, while the other phase consists of a decrease in prices and high interest rates.

Kondratieff identified three phases in the cycle: expansion, stagnation, recession. More common today is the division into four periods with a turning point (collapse) between the first and second phases.

A fourth cycle may have roughly coincided with the Cold War: beginning in 1949, turning with the economic peak of the mid-1960s and the Vietnam War escalation, hitting a trough in 1982 amidst growing predictions in the United States of worldwide Soviet domination and ending with the fall of the Berlin Wall in 1989. The current cycle most likely peaked in 1999 with a possible “winter” phase beginning in late 2008. The Austrian-school economists point out that extreme price inflation in the absence of economic growth is a form of capital destruction, allowing either stagflation or deflation to represent a recession or depression phase of the Kondratieff theory.

Stabilizing policy of the State

The main goal of the stabilizing policy is to reduce the wave hesitance. There are two types of policies like this.

The Policy of containment.

This is an activity to reduce the demand. Government uses it at the stage of peak. At this moment the demand is growing that’s why entrepreneurs are striving to rise the prices and expand the production. And this causes the inflation potential. At this point the economy needs to be “cooled”. Apparently, the government wants to raise taxes, reduce state budget spendings, to raise interest rates.